The growing pressure on British consumers was underlined on Thursday by a surprise rise in mortgage defaults and a drop in UK sales at Laura Ashley and Mothercare.

The number of people defaulting on their mortgage has jumped unexpectedly in the last quarter, the Bank of England reported in its latest credit conditions report (pdf). Lenders believe the rate of defaults is likely to rise again during the next three months and fear that a rise in interest rates could leave many more mortgage holders unable to meet their monthly repayments.

The credit survey also found that more small businesses were defaulting on their loans as the UK economy weakens.

UK sales at Mothercare have fallen by 2.4% during 2011, on a like-for-like basis. The mother and baby retailer admitted it had been forced to slash profit margins in recent weeks to shift stock and saw little prospect of better conditions on the British high street this year.

"The UK trading environment remains difficult with weaker consumer demand and lower footfall," said chief executive Ben Gordon. "In the UK, we expect the consumer environment will be challenging and, accordingly, we are planning cautiously."

Gordon said the profitability of the UK retail operations would remain under significant pressure over the next 12 months as demand continued to be weak.

Shares in Mothercare tumbled by 45p to 397p in early trading, a fall of more than 10%.

Laura Ashley, another famous name on the UK high street, also alarmed the City by reporting that like-for-like UK sales fell by 4.2% in the last eight weeks.

The company had performed well in 2010, almost doubling its profits to £19.3m in the 52 weeks to the end of January. However, 2011 has been less kind.

"There has been a decline in performance since the beginning of February, which we attribute to a general weakening in the consumer economy," said Tan Sri Dr. K P Khoo, chairman of Laura Ashley.

Shares in the group fell 2.5p to 23p, down 9.9%.

Hennes & Mauritz, the fashion retailer, also disappointed investors on Thursday by reporting a 30% drop in profits for the last three months. H&M blamed higher costs of commodities such as cotton, which it said it had absorbed rather than passed on to consumers.

Sentiment remains bleak

UK consumer confidence slumped in January, as Britons reacted to the slowing economic recovery, the VAT rise and the cuts hitting the public sector.

"This month's figures show how badly some form of stimulus is needed," said Nick Moon, managing director of GfK NOP Social Research. "The last time it was this consistently low was two years ago and, before then, in autumn 1990."

Howard Archer, chief UK economist at IHS Global Insight, said it was "somewhat worrying" that there had been virtually no recovery in sentiment since January.

"Consumer confidence remains extremely weak, thereby maintaining concern that consumers will be very cautious in their spending over the coming months in the face of serious headwinds," Archer said.